Charity financial controls and governance | England and Wales
A service manager receives a bill in January for work completed in December. Finance records it when it is paid in February. Unless somebody checks which period the work belongs to, the December management accounts can look better than the underlying position.
For a charity preparing accruals accounts, the year-end review needs to capture goods and services already received, not just invoices processed or cash paid. The wider management lesson is to make obligations visible before trustees use the figures to approve more expenditure. The Charity Commission's explanation of accruals accounts distinguishes costs and liabilities from the timing of payment. [1]
An audit adjustment can correct the annual accounts. It cannot retrospectively improve the information on which earlier spending decisions were based. The practical priority is a repeatable monthly process, with a more thorough review at year end.
Find the point where finance loses sight of the cost
Missing expenses do not always start in the finance team. A supplier may send invoices to a project manager. An annual bill may be disputed, or a direct debit may have stopped without anyone checking the remaining liability.
Ask how finance learns that an obligation exists. If the answer is only 'when the invoice arrives', there is a gap between operational decisions and the accounts.
Give budget holders a short monthly prompt covering work completed but not invoiced, disputed bills, new contracts and changes to existing commitments. Require a nil response where there is nothing to report. Finance should log the responses and follow up omissions. Silence should not be treated as confirmation that no costs are outstanding.
Separate three different categories
An unpaid invoice for work already received will usually be a creditor. An estimate for work already received but not yet invoiced may be an accrual. An order for future work is a commitment which may need to inform forecasts and disclosures without necessarily being a present liability.
Keeping these categories distinct prevents two opposite errors: omitting an existing obligation and treating every future budget item as a current expense. Judgement is needed for disputed claims, onerous arrangements and other unusual circumstances. Obtain advice where the accounting conclusion is material or uncertain. [2]
Illustrative example. A charity receives a £9,600 annual insurance invoice covering October to September and has not paid it at 31 December. Assume the full invoice is contractually payable, cover is in force and the benefit is provided evenly. Three months, £2,400, relate to the year ended December. The remaining £7,200 relate to the following period. The unpaid invoice, current-year expense and future-period benefit each need to be reflected appropriately. Paying the bill later does not make all £9,600 a cost of that later month.
Use a small number of reliable checks
Start with supplier statements and the purchase ledger. Investigate invoices on a statement that are absent from the accounts, and payments that have not been matched to the relevant bill.
Next, review payments and invoices received after year end. The purpose is to identify costs belonging to the earlier period, not to pull every later payment back into it. Decide the review period using the charity's billing patterns and risk; there is no single number of weeks that proves completeness for every charity.
Then compare recurring expenses with the prior year, budget and agreements. A missing rent, utility, insurance or professional-fee charge deserves an explanation. A stable total does not prove that each component is correct, but an unexpected gap can point to work worth investigating.
Finally, ask operational managers about work completed, contract changes and disputed amounts. Include major projects and less active locations. A head-office checklist cannot cover information that never reaches head office. These recommendations put into practice the Commission's expectation of timely, relevant financial information and suitable controls. [3]
Clear old balances rather than carrying them indefinitely
An accrual recorded last year can remain on the ledger even after the supplier has been paid. If the payment is then recorded as a new expense, the same cost may be counted twice.
For each material carried-forward balance, record what it represents, how it was estimated and what happened subsequently. Match the invoice or payment to the existing amount. Explain any difference. Where an estimate is released, retain the reason; do not use a general reversal to conceal an unresolved balance.
An old creditor is not automatically income, and an old accrual is not automatically unnecessary. The finance reviewer needs evidence that the obligation has been settled, changed or no longer exists.
Keep capital projects visible without confusing cash and performance
Major refurbishment and equipment purchases require a separate review. Some expenditure may qualify as an asset rather than an immediate operating expense. Other spending may be repairs. Unpaid amounts can still be liabilities regardless of which classification is appropriate.
Give trustees both the accounting effect and the cash requirement. Moving qualifying costs into fixed assets can improve the reported annual result without making the project cheaper or cancelling the bill. Depreciation and other subsequent accounting consequences also need consideration.
A project summary should show approved budget, work completed, amounts paid, amounts owed and the forecast cost to finish. This connects the accounts with the decision trustees actually face: whether the charity can complete the work and meet its other obligations.
Make the monthly review proportionate
A charity with several locations and contracts needs a more structured process than one with a small number of predictable costs. Neither benefits from a checklist so long that it is completed mechanically.
Agree who gathers information, who makes accounting judgements and who reviews significant estimates. Give the reviewer access to the supporting documents and time to challenge them. Start with high-risk and recurring balances, then improve coverage as the process settles.
The next board paper should distinguish a genuine improvement in operating performance from changes caused by late invoices or accounting corrections. Where previous management information was materially incomplete, explain the effect on decisions already made and the action needed now.
Sources and further reading
Official guidance checked on 21 October 2026.
[1] Charity Commission, Charity accounts: rules for charitable companies
[2] Charities SORP, applicable editions and full SORP downloads
[3] Charity Commission, Internal financial controls for charities (CC8)
Frequently asked questions
Does an unpaid bill belong in the year when it is paid?
Not necessarily. In accruals accounts, the period to which the goods or services relate is important. Payment timing alone does not determine when expenditure and a liability are recognised.
Is every purchase order a liability?
No. An order for future delivery is different from goods or services already received. Track commitments for planning, and assess recognition or disclosure under the relevant requirements where necessary.
What about charities using receipts and payments accounts?
Their statutory accounts follow a different basis. They still need to understand unpaid bills and future commitments to manage responsibly. This article's accruals examples should not be imposed on their receipts and payments statement.
Can trustees leave the checking to the auditor?
Management should prepare reliable records and trustees should oversee that process. Audit is independent scrutiny, not a substitute for the charity's monthly controls or a guarantee that every omitted item will be found.
Why can capitalising expenditure improve the result but not cash?
A qualifying asset is recognised on the balance sheet rather than wholly as an immediate operating expense. The payment or obligation still exists. Trustees need both the accounting explanation and the project cash position.